The European Union (EU) will not grant the United Kingdom an exemption from its carbon border adjustment mechanism (CBAM) on imported goods, including steel and cement, until the UK carbon market is formally linked to the EU system, EU Climate Commissioner Wopke Hoekstra confirmed on Thursday.

British industries had hoped for a temporary exemption from the levy while negotiations on carbon market linkage were ongoing. The UK government has warned that the EU levy could cost British industry £800 million annually.

EU Stance on Carbon Border Levy

Hoekstra stated:

“We’re not exempting anyone, but the moment we will be fully linking those two, it is likely that there will be an exemption at that point in time.”

While acknowledging that the UK government might have preferred a different timeline, Hoekstra emphasized that the EU is committed to constructively working with Britain to achieve carbon market linkage.

Impact on UK Industries

The EU CBAM will cover imports of steel, cement, fertilisers, aluminium, hydrogen, and electricity starting in January 2026. Companies must purchase CBAM certificates to cover their 2026 emissions and submit them to the EU by September 2027.

British steel and cement exporters face increased costs and administrative burdens due to the levy, which comes at a time of heightened global trade uncertainty. Frank Aaskov, Director for Energy and Climate Change Policy at UK Steel, said:

“The EU CBAM creates a barrier to UK steel exports to Europe and piles additional costs and admin onto our steelmakers at a time when global trade is increasingly turbulent.”

Respite for UK Electricity Exports

There is some relief for UK electricity exports. The European Commission confirmed that British power exports should largely avoid CBAM charges because UK power plants already pay higher CO2 costs than their EU counterparts. The British government welcomed this clarification.

“Our priority remains securing a carbon-linking agreement as soon as possible, which would save UK industry from paying the charge on £7 billion worth of UK exports,” a government spokesperson said.

Timeline and Next Steps

The CBAM will begin imposing fees on EU imports from January 2026, with a transition period for companies to purchase and report CBAM certificates covering 2026 emissions by September 2027. The EU and UK continue negotiations to link their carbon markets, which could eventually provide exemptions for UK exports under CBAM rules.